Front Yard Residential Corporation (“Front Yard” or the “Company”)
(NYSE: RESI) today announced that it has completed the acquisition
of property manager HavenBrook Partners, LLC (“HavenBrook”) as well
as the portfolio of 3,236 properties managed by HavenBrook. The
Company is also reporting its financial and operating results for
the second quarter of 2018.
Acquisition of Property Manager and Stabilized
Portfolio
- Acquired 3,236 single-family rental (“SFR”) homes currently
managed by HavenBrook in target markets, growing portfolio to
approximately 15,000 homes.
- Commenced internalization of the property management function
onto the HavenBrook platform.
- Plan to transition approximately 4,000 externally managed
properties onto internal platform by year end 2018.
- Obtained $508.7 million of long-term, fixed rate financing as
part of Freddie Mac's affordable SFR pilot program.
On August 8, 2018, Front Yard completed the acquisition of
HavenBrook and the 3,236 homes managed by HavenBrook, expanding its
SFR portfolio to approximately 15,000 homes. This transaction
strengthens the Company’s presence in existing strategic target
markets, including Alabama, Florida, Georgia and Minnesota. The
acquisition of HavenBrook provides Front Yard with an internal
property manager and the opportunity to build an efficient,
scalable platform that will provide its customers with excellent
service and allow it to benefit from economies of scale that will
enhance long-term shareholder value. The combined purchase price of
the properties and the property manager was $485.0 million.
Front Yard also reached an agreement with Altisource Portfolio
Solutions S.A. (“ASPS”) on August 8, 2018 to acquire certain
property management resources owned by ASPS for an aggregate cost
of $18 million. The exclusivity provisions with respect to property
management have been terminated and, following a short transition
period, the existing property management services provided by ASPS
will terminate other than with respect to title insurance services
and limited non-rental management services. Front Yard intends to
combine the resources acquired from ASPS with the HavenBrook
platform and to transition the approximately 4,000 properties
currently managed by ASPS to the internal property manager by
December 31, 2018.
In conjunction with the acquisition of HavenBrook and the new
rental properties, Berkadia Commercial Mortgage LLC (“Berkadia”)
provided $508.7 million of 10-year, fixed rate financing (the “FYR
SFR Loan Agreement”) as part of the Federal Home Loan Mortgage
Corporation’s (“Freddie Mac”) affordable single-family rental pilot
program. This financing includes 2,798 of the newly acquired
properties as well as 2,015 additional properties already owned by
the Company and previously financed on its existing warehouse
facilities. Approximately 78% of the homes financed pursuant to the
FYR SFR Loan Agreement have rents that are considered affordable
for families earning at or below 80% of the area median income
(“AMI”). Moreover, approximately 93% of the units are affordable
for families earning at or below 100% of AMI.
“The acquisition of HavenBrook and the homes it manages is a
milestone in our company’s evolution as the leading affordable
housing provider,” said Chief Executive Officer George Ellison.
“The acquisition of an internal property manager will allow us to
improve the excellent service to our families while providing
opportunities to drive efficiencies to increase shareholder value.
We are focused on seamlessly and efficiently transitioning
properties onto the HavenBrook platform in order to avoid
disruptions to the client service experience.”
Second Quarter 2018
Highlights
- Full-company Core Funds from Operations per diluted share
increased to $0.06 for the second quarter of 2018.1
- Stabilized Rental Net Operating Income Margin was 65%.1
- 94% of stabilized rentals were leased at June 30, 2018.
- 190 remaining legacy REOs, down 41% from 320 at March 31, 2018
and down 61% from 490 at December 31, 2017.
- 65% of funding had fixed or capped rates and 79% had maturities
of over three years.
“Our operating metrics continue to be strong,” stated George
Ellison. “With the additional scale of the newly acquired homes and
the internalization of property management for a significant
portion of our portfolio, we expect to continue to deliver
operating efficiencies and strong results to our shareholders.”
1 Core
Funds from Operations and Stabilized Rental Net Operating Income
Margin are non-GAAP measures. Refer to the Reconciliation of
Non-GAAP Financial Measures section for further information and
reconciliation to U.S. GAAP net loss.
Second Quarter 2018 Financial Results
GAAP net loss for the second quarter of 2018 improved to $21.3
million, or $0.40 per diluted share, compared to a net loss of
$55.7 million, or $1.04 per diluted share, for the second quarter
of 2017. GAAP net loss for the six months ended June 30, 2018
improved to $48.7 million, or $0.91 per diluted share, compared to
a net loss of $105.1 million, or $1.96 per diluted share, for the
six months ended June 30, 2017.
Webcast and Conference Call
The Company expects to host a webcast and conference call on
Thursday, August 9, 2018, at 8:30 a.m. Eastern Time to discuss its
financial results for the second quarter of 2018. The conference
call will be webcast live over the internet from the Company’s
website at www.frontyardresidential.com and can be accessed by
clicking on the “Investors” link.
About Front Yard Residential Corporation
Front Yard is an industry leader in providing quality,
affordable rental homes to America’s families. Our homes offer
exceptional value in a variety of suburban communities which have
easy accessibility to metropolitan areas. Front Yard's tenants
enjoy the space and comfort that is unique to single-family
housing, at reasonable prices. Our mission is to provide our
tenants with houses they are proud to call home. Additional
information is available at www.frontyardresidential.com.
Forward-looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, regarding management’s beliefs, estimates, projections,
anticipations and assumptions with respect to, among other things,
the Company’s financial results, future operations, business plans
and investment strategies as well as industry and market
conditions. These statements may be identified by words such as
“anticipate,” “intend,” “expect,” “may,” “could,” “should,”
“would,” “plan,” “estimate,” “seek,” “believe” and other
expressions or words of similar meaning. We caution that
forward-looking statements are qualified by the existence of
certain risks and uncertainties that could cause actual results and
events to differ materially from what is contemplated by the
forward-looking statements. Factors that could cause the Company's
actual results to differ materially from these forward-looking
statements may include, without limitation, our ability to
implement our business strategy; our ability to make distributions
to stockholders; our ability to complete potential transactions in
accordance with anticipated terms and on a timely basis or at all;
the Company's ability to integrate newly acquired rental assets
into the portfolio; the ability to successfully and efficiently
integrate and operate the Company’s newly acquired property manager
or effectively perform the property management services at the
level and/or the cost that we anticipate; the failure to identify
unforeseen expenses or material liabilities associated with
acquisitions through the due diligence process prior to such
acquisitions; difficulties in identifying single-family properties
to acquire; the impact of changes to the supply of, value of and
the returns on single-family rental properties; the Company’s
ability to acquire single-family rental properties generating
attractive returns; the Company’s ability to sell residential
mortgage assets or non-rental real estate owned on favorable terms
or at all; the Company’s ability to predict costs; the Company’s
ability to effectively compete with competitors; changes in
interest rates; changes in the market value of single-family
properties; the Company’s ability to obtain and access financing
arrangements on favorable terms or at all; the Company’s ability to
deploy the net proceeds from financings or asset sales to acquire
target assets in a timely manner or at all; the Company's
ability to maintain adequate liquidity and meet the requirements
under its financing arrangements; the Company’s ability to retain
the exclusive engagement of Altisource Asset Management
Corporation; the failure of external property managers to
effectively perform their obligations under their agreements with
the Company; the Company's failure to qualify or maintain
qualification as a REIT; the Company’s failure to maintain its
exemption from registration under the Investment Company Act of
1940, as amended; the impact of adverse real estate, mortgage or
housing markets; the impact of adverse legislative or regulatory
tax changes and other risks and uncertainties detailed in the “Risk
Factors” and other sections described from time to time in the
Company's current and future filings with the Securities and
Exchange Commission. In addition, financial risks such as
liquidity, interest rate and credit risks could influence future
results. The foregoing list of factors should not be construed as
exhaustive.
The statements made in this press release are current as of the
date of this press release only. The Company undertakes no
obligation to publicly update or revise any forward-looking
statements or any other information contained herein, whether as a
result of new information, future events or otherwise, except as
required by law.
Front Yard Residential
CorporationCondensed Consolidated Statements of
Operations(In thousands, except share and per
share amounts)(Unaudited)
|
Three months ended June 30, |
|
Six months ended June 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Revenues: |
|
|
|
|
|
|
|
Rental revenues |
$ |
40,906 |
|
|
$ |
30,102 |
|
|
$ |
80,671 |
|
|
$ |
55,720 |
|
Change in unrealized
gain on mortgage loans |
— |
|
|
(77,824 |
) |
|
— |
|
|
(129,689 |
) |
Net realized gain on
mortgage loans |
— |
|
|
40,227 |
|
|
— |
|
|
75,777 |
|
Net realized gain on
sales of real estate |
— |
|
|
20,807 |
|
|
— |
|
|
40,763 |
|
Interest income |
— |
|
|
98 |
|
|
— |
|
|
177 |
|
Total
revenues |
40,906 |
|
|
13,410 |
|
|
80,671 |
|
|
42,748 |
|
Expenses: |
|
|
|
|
|
|
|
Residential property
operating expenses |
17,197 |
|
|
19,337 |
|
|
33,989 |
|
|
37,596 |
|
Depreciation and
amortization |
18,761 |
|
|
14,805 |
|
|
37,951 |
|
|
29,979 |
|
Acquisition fees and
costs |
759 |
|
|
209 |
|
|
792 |
|
|
376 |
|
Impairment |
2,143 |
|
|
9,114 |
|
|
9,718 |
|
|
23,334 |
|
Mortgage loan servicing
costs |
319 |
|
|
2,625 |
|
|
674 |
|
|
8,870 |
|
Interest expense |
16,338 |
|
|
15,153 |
|
|
32,401 |
|
|
30,725 |
|
Share-based
compensation |
1,094 |
|
|
552 |
|
|
680 |
|
|
2,466 |
|
General and
administrative |
2,477 |
|
|
2,882 |
|
|
5,150 |
|
|
5,204 |
|
Management fees to
AAMC |
3,697 |
|
|
4,433 |
|
|
7,487 |
|
|
9,248 |
|
Total
expenses |
62,785 |
|
|
69,110 |
|
|
128,842 |
|
|
147,798 |
|
Operating
loss |
(21,879 |
) |
|
(55,700 |
) |
|
(48,171 |
) |
|
(105,050 |
) |
Net loss on real estate
and mortgage loans |
(306 |
) |
|
— |
|
|
(1,940 |
) |
|
— |
|
Casualty loss
reversals, net |
520 |
|
|
— |
|
|
520 |
|
|
— |
|
Insurance
recoveries |
115 |
|
|
— |
|
|
115 |
|
|
— |
|
Other income |
214 |
|
|
— |
|
|
790 |
|
|
— |
|
Loss
before income taxes |
(21,336 |
) |
|
(55,700 |
) |
|
(48,686 |
) |
|
(105,050 |
) |
Income tax expense |
— |
|
|
7 |
|
|
— |
|
|
14 |
|
Net
loss |
$ |
(21,336 |
) |
|
$ |
(55,707 |
) |
|
$ |
(48,686 |
) |
|
$ |
(105,064 |
) |
|
|
|
|
|
|
|
|
Loss per share
of common stock - basic: |
|
|
|
|
|
|
|
Loss per basic
share |
$ |
(0.40 |
) |
|
$ |
(1.04 |
) |
|
$ |
(0.91 |
) |
|
$ |
(1.96 |
) |
Weighted average common
stock outstanding - basic |
53,520,486 |
|
|
53,474,680 |
|
|
53,487,459 |
|
|
53,560,012 |
|
Loss per share
of common stock - diluted: |
|
|
|
|
|
|
|
Loss per diluted
share |
$ |
(0.40 |
) |
|
$ |
(1.04 |
) |
|
$ |
(0.91 |
) |
|
$ |
(1.96 |
) |
Weighted average common
stock outstanding - diluted |
53,520,486 |
|
|
53,474,680 |
|
|
53,487,459 |
|
|
53,560,012 |
|
|
|
|
|
|
|
|
|
Dividends declared per
common share |
$ |
0.15 |
|
|
$ |
0.15 |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
Front Yard Residential
CorporationCondensed Consolidated Balance
Sheets(In thousands, except share and per share
amounts)
|
June 30, 2018 |
|
December 31, 2017 |
|
(unaudited) |
|
|
Assets: |
|
|
|
Real estate held for
use: |
|
|
|
Land |
$ |
317,789 |
|
|
$ |
322,062 |
|
Rental
residential properties |
1,393,371 |
|
|
1,381,110 |
|
Real
estate owned |
57,279 |
|
|
64,036 |
|
Total
real estate held for use |
1,768,439 |
|
|
1,767,208 |
|
Less: accumulated
depreciation |
(105,716 |
) |
|
(73,655 |
) |
Total
real estate held for use, net |
1,662,723 |
|
|
1,693,553 |
|
Real estate assets held
for sale |
26,850 |
|
|
75,718 |
|
Mortgage loans at fair
value |
9,778 |
|
|
11,477 |
|
Cash and cash
equivalents |
111,644 |
|
|
113,666 |
|
Restricted cash |
37,095 |
|
|
47,822 |
|
Accounts receivable,
net |
16,180 |
|
|
19,555 |
|
Prepaid expenses and
other assets |
20,791 |
|
|
12,758 |
|
Total
assets |
$ |
1,885,061 |
|
|
$ |
1,974,549 |
|
|
|
|
|
Liabilities: |
|
|
|
Repurchase and loan
agreements |
$ |
1,241,336 |
|
|
$ |
1,270,157 |
|
Accounts payable and
accrued liabilities |
59,222 |
|
|
55,639 |
|
Payable to AAMC |
4,252 |
|
|
4,151 |
|
Total
liabilities |
1,304,810 |
|
|
1,329,947 |
|
|
|
|
|
Commitments and
contingencies |
— |
|
|
— |
|
|
|
|
|
Equity: |
|
|
|
Common stock, $0.01 par
value, 200,000,000 authorized shares; 53,561,803 shares issued and
outstanding as of June 30, 2018 and 53,447,950 shares issued and
outstanding as of December 31, 2017 |
536 |
|
|
534 |
|
Additional paid-in
capital |
1,181,873 |
|
|
1,181,327 |
|
Accumulated
deficit |
(602,158 |
) |
|
(537,259 |
) |
Total
equity |
580,251 |
|
|
644,602 |
|
Total liabilities and equity |
$ |
1,885,061 |
|
|
$ |
1,974,549 |
|
Front Yard Residential
CorporationRegulation G Requirement:
Reconciliation of Non-GAAP Financial Measures(In
thousands, except share and per share
amounts)(Unaudited)
In evaluating Front Yard’s financial performance, management
reviews Funds from Operations (“FFO”), Core Funds from Operations
(“Core FFO”), Stabilized Rental Net Operating Income (“Stabilized
Rental NOI”) and Stabilized Rental Net Operating Income Margin
(“Stabilized Rental NOI Margin”), which exclude certain items from
Front Yard’s results under U.S. generally accepted accounting
principles (“GAAP”). FFO, Core FFO, Stabilized Rental NOI and
Stabilized Rental NOI Margin are non-GAAP performance measures that
Front Yard believes are useful to assist investors in gaining an
understanding of the trends and operating metrics for Front Yard’s
core business. These non-GAAP measures should be viewed in addition
to, and not in lieu of, Front Yard’s reported results under U.S.
GAAP.
The following provides related definitions of, and a
reconciliation of Front Yard’s U.S. GAAP results to FFO, Core FFO,
Stabilized Rental NOI and Stabilized Rental NOI Margin for the
periods presented:
FFO and Core FFO: FFO is a supplemental
performance measure of an equity real estate investment trust
(“REIT”) used by industry analysts and investors in order to
facilitate meaningful comparisons between periods and among peer
companies. FFO is defined by the National Association of Real
Estate Investment Trusts (“NAREIT”) as GAAP net income or loss
excluding gains or losses from sales of property, impairment
charges on real estate and depreciation and amortization on real
estate assets adjusted for unconsolidated partnerships and jointly
owned investments.
We believe that FFO is a meaningful supplemental measure of our
overall operating performance because historical cost accounting
for real estate assets in accordance with GAAP assumes that the
value of real estate assets diminishes predictably over time, as
reflected through depreciation. Because real estate values have
historically risen or fallen with market conditions, management
considers FFO an appropriate supplemental performance measure
because it excludes historical cost depreciation, impairment
charges and gains or losses related to sales of previously
depreciated homes from GAAP net income. By excluding depreciation,
impairment and gains or losses on sales of real estate, FFO
provides a measure of our returns on our investments in real estate
assets. However, because FFO excludes depreciation and amortization
and captures neither the changes in the value of the homes that
result from use or market conditions nor the level of capital
expenditures to maintain the operating performance of the homes,
all of which have real economic effect and could materially affect
our results from operations, the utility of FFO as a measure of our
performance is limited.
Our Core FFO begins with FFO and is adjusted for share-based
compensation; acquisition fees and costs; non-cash interest expense
related to deferred debt issuance costs, amortization of loan
discounts and mark-to-market adjustments on interest rate
derivatives; and other non-comparable items, as applicable. We
believe that Core FFO, when used in conjunction with the results of
operations under GAAP, is a meaningful supplemental measure of our
operating performance for the same reasons as FFO and is further
helpful as it provides a consistent measurement of our performance
across reporting periods by removing the impact of certain items
that are not comparable from period to period. Because Core FFO,
similar to FFO, captures neither the changes in the value of the
homes nor the level of capital expenditures to maintain them, the
utility of Core FFO as a measure of our performance is limited.
Although management believes that FFO and Core FFO increase our
comparability with other companies, these measures may not be
comparable to the FFO or Core FFO of other companies because other
companies may adopt a definition of FFO other than the NAREIT
definition, may apply a different method of determining Core FFO or
may utilize metrics other than or in addition to Core FFO.
The following table provides a reconciliation of net loss as
determined in accordance with U.S. GAAP to FFO and Core FFO:
|
|
Three months ended June 30, 2018 |
GAAP net loss |
|
$ |
(21,336 |
) |
|
|
|
Adjustments to
determine FFO: |
|
|
Depreciation and
amortization |
|
18,761 |
|
Impairment |
|
2,143 |
|
Net loss on real estate
and mortgage loans |
|
306 |
|
FFO |
|
(126 |
) |
|
|
|
Adjustments to
determine Core FFO: |
|
|
Acquisition fees and
costs |
|
759 |
|
Non-cash interest
expense |
|
1,219 |
|
Share-based
compensation |
|
1,094 |
|
Other adjustments |
|
94 |
|
Core
FFO |
|
$ |
3,040 |
|
|
|
|
Weighted average common
stock outstanding - basic and diluted |
|
53,520,486 |
|
FFO per share - basic
and diluted |
|
$ |
0.00 |
|
Core FFO per share -
basic and diluted |
|
$ |
0.06 |
|
Stabilized Rental: We define a property as
stabilized once it has been renovated and then initially leased or
available for rent for a period greater than 90 days. All other
homes are considered non-stabilized. Homes are considered
stabilized even after subsequent resident turnover. However, homes
may be removed from the stabilized home portfolio and placed in the
non-stabilized home portfolio due to renovation during the home
lifecycle or because they are identified for sale.
Stabilized Rental NOI and Stabilized Rental NOI
Margin: Stabilized Rental NOI is a non-GAAP supplemental
measure that we define as rental revenues less residential property
operating expenses of the stabilized rental properties in our
rental portfolio. We define Stabilized Rental NOI Margin as
Stabilized Rental NOI divided by rental revenues.
We consider Stabilized Rental NOI and Stabilized Rental NOI
Margin to be meaningful supplemental measures of operating
performance because they reflect the operating performance of our
stabilized properties without allocation of corporate level
overhead or general and administrative costs, acquisition fees and
other similar costs and provide insight to the ongoing operations
of our business. These measures should be used only as supplements
to and not substitutes for net income or loss or net cash flows
from operating activities as determined in accordance with GAAP.
These net operating income measures should not be used as
indicators of funds available to fund cash needs, including
distributions and dividends. Although we may use these non-GAAP
measures to compare our performance to other REITs, not all REITs
may calculate these non-GAAP measures in the same way, and there is
no assurance that our calculation is comparable with that of other
REITs. While management believes that our calculations are
reasonable, there is no standard calculation methodology for
Stabilized Rental NOI Margin, and different methodologies could
produce materially different results.
The following table provides a reconciliation of net loss as
determined in accordance with U.S. GAAP to Stabilized Rental NOI
and Stabilized Rental NOI Margin:
|
|
Three months ended June 30, 2018 |
GAAP net loss |
|
$ |
(21,336 |
) |
|
|
|
Adjustments: |
|
|
Net loss on real estate
and mortgage loans |
|
306 |
|
Residential property
operating expenses on non-stabilized rentals and REOs |
|
2,684 |
|
Depreciation and
amortization |
|
18,761 |
|
Acquisition fees and
costs |
|
759 |
|
Impairment |
|
2,143 |
|
Mortgage loan servicing
costs |
|
319 |
|
Interest expense |
|
16,338 |
|
Share-based
compensation |
|
1,094 |
|
General and
administrative |
|
2,477 |
|
Management fees to
AAMC |
|
3,697 |
|
Other income |
|
(849 |
) |
Stabilized Rental NOI |
|
$ |
26,393 |
|
|
|
|
Rental revenues |
|
$ |
40,906 |
|
Stabilized Rental NOI
Margin |
|
65 |
% |
FOR FURTHER
INFORMATION CONTACT: |
Robin N. Lowe |
Chief Financial
Officer |
T: +1-345-815-9919 |
E:
Robin.Lowe@AltisourceAMC.com |
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